If you owe a large amount of money to a credit card company and stop making payments, these companies may try to recover the debt you owe through wage garnishment. Wage garnishment allows creditors to legally take a portion of each of your paychecks until the debt is paid.
Severe debt is a grim leftover from the recession. In the past, wage garnishment typically covered tax payments or child support; today, more garnishment occurs for consumer debt like student loans, medical bills and credit card debt.
According to a study from National Public Radio and ProPublica, one in 10Americans between the ages of 35 and 44 are having their wages garnished by creditors, half of them for consumer debt. About 3 percent of the overall American population had their wages garnished in 2013.
Before seizing any money, the credit card must file a lawsuit against you. Typically this is done in a local court. They are able to do this because when you signed up for the credit card, you signed a contract promising to make monthly payments. This is an expensive process, even for large companies, so they only pursue a relatively small number of these cases.
Once the company receives a judgment in court, they work with your employer to garnish wages. Employers are required by law to comply. The employer needs to understand the garnishment documents and state law, or any errors could make them responsible for all or part of the debt. Generally, employers are not allowed to fire employees having wages garnished under federal law.
If you are in debt, there are a few steps you can take to prevent wage garnishment:
- Settle the debt. Credit card companies would likely rather settle than spend money on legal fees. If they sent your debt to a collector it would be for a reduced rate anyway.
- Familiarize yourself with state laws. Wage garnishment is legal for credit card debt in over half of U.S. states, but not all. States have different laws about how much of your wages can be taken; the maximum rate under federal law is 25 percent.
- Consider filing for bankruptcy as a last resort. Bankruptcy can help you settle credit card debt, thus ending wage garnishment, but it will seriously impact your financial status and should only be considered as a last resort.
Worried about wage garnishment and credit card debt? Work with the Money Mastery team for debt relief solutions. Contact us today for more information.